Is coverage causing volatility?

Roger Ehrenberg, an investor who blogs on his Infortmation Arbitrage site, wonders whether media coverage of the current financial crisis is causing the stock market’s volatility.

Ehrenberg writes, “Every day, whether you are watching CNBC, CNN, Fox Business News or the online equivalents, there are countless numbers of talking heads discussing their views with passion and intensity. ‘This is an historic buying opportunity; market value to replacement cost has never been lower in the (name the industry) sector.’ Or perhaps ‘The Apocalypse is upon us; Government debt will rise until it consumes us all, devaluing currencies and spurring the Second Coming of the Great Depression.’

“Media is motivated to evoke a reaction. A strong reaction. They want people to pay attention, right? So what do they do? Sew the seeds of conflict. Just having a bunch of bears makes no sense. A bunch of perma-bulls is even worse. Gotta add some of both to the mix. And keep doing it to fill the dead space, again and again and again.

“So by its nature, Big Media has created a kind of ‘volatility news cycle,’ one that is sufficiently exciting to get people to watch but which can cause people’s emotions to run all over the map. And viewers are particularly vulnerable to this tacit manipulation as never before, mostly because they are scared that their financial well-beings are getting flushed down the toilet before their eyes.”

Read more here.Â